Public Information Notice No. 12/25

Public Information Notice: IMF Executive Board Discusses Amendment to the Extended Fund Facility to Extend the Arrangement Duration at Approval

March 14, 2012

On March 14, 2012, the Executive Board of the International Monetary Fund (IMF) approved an amendment to the Extended Fund Facility (EFF) to allow extended arrangements to be approved for up to a maximum of four years from the outset. Until now, the policy allowed approval only for up to three years with the possibility of subsequently extending the arrangement to up to four years.

The EFF was established in 1974 to address balance of payments difficulties of members with imbalances arising from serious structural impediments in production and trade, requiring a prolonged period of adjustment and major policy shifts to restore the member’s balance of payments. Consistent with the spirit of the reforms of the IMF lending toolkit since 2009, which have injected substantial flexibility and allowed better tailoring to countries’ varying circumstances and needs, the use of the EFF over time has broadened from low- and middle-income countries with prolonged balance of payments needs to more developed countries facing larger financing needs, such as those that have arisen in the Euro Area crisis.

Until now, extended arrangements under the EFF could only be approved for periods not exceeding three years, but could be subsequently lengthened during the arrangement period, where appropriate, to a duration of up to a maximum of four years. Allowing approval of extended arrangements of up to four years from the outset would make the EFF more flexible and help better support adjustment in the context of longer-term balance of payments needs. While prolonged balance of payments needs would normally continue to be addressed with extended arrangements of up to three years, approvals of extended arrangements of up to four years would be appropriate in some cases, including if a balance of payments need beyond a three-year period exists, the necessary economic adjustment is of prolonged nature and is envisaged from the outset to take longer than three years, and adequate assurances exist that the member is able and willing to implement deep structural reforms.

Purchases under extended arrangements would be expected to be evenly phased, consistent with normal Fund practice. Implications of this change to the EFF for the design of blended EFF-PRGT financing would be considered in the upcoming review of low-income-countries facilities.